<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-13826
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THREE RIVERS FINANCIAL CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3235452
-------- ----------
(State or other jurisdiction of (IRS Employer ID No)
Incorporation or organization)
123 Portage Avenue, Three Rivers, Michigan 49093
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(616) 279-5117
--------------
Registrant's telephone number, including area code
N/A
---
Former name, address, and fiscal year, if changed since last report
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirement for
the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common equity as of the latest practicable date:
824,540 shares of Common Stock, Par Value $.01 per share as of
February 12, 1998
Transitional Small Business Disclosure Format (check one): Yes ; No X
-- --
<PAGE> 2
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
FORM 10Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements of Three Rivers Financial Corporation
(Unaudited)
Condensed Consolidated Balance Sheets as of December 31,
1997 and June 30, 1997 1
Condensed Consolidated Statements of Income for the three
and six months ended December 31, 1997 and 1996 2
Condensed Consolidated Statement of Changes in Shareholders'
Equity 3
Consolidated Statements of Cash Flows for the six months
ended December 31, 1997 and 1996 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION 14
Signatures 15
<PAGE> 3
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1997 and June 30, 1997
<TABLE>
<CAPTION>
December 31 June 30
1997 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash and due from other financial institutions $ 1,990,104 $ 2,724,565
Interest-earning deposits with other financial institutions 8,165,310 4,713,428
------------- --------------
Cash and cash equivalents 10,155,414 7,437,993
Interest-earning time deposits with other financial institutions 3,965,980 3,470,980
Securities held to maturity (fair value: $16,021,389 at
December 31, 1997, and $17,891,461 at June 30, 1997) 15,919,932 17,924,950
Loans receivable, net of allowance for loan losses of
$504,533 at December 31, 1997, and $487,184 at June 30, 1997 62,562,928 61,812,630
Federal Home Loan Bank Stock 1,112,200 1,042,300
Accrued interest receivable 548,874 450,892
Premises and equipment, net 2,083,344 1,435,603
Foreclosed real estate 31,835 415,059
Investment in low-income housing partnership 448,430 473,117
Other asset 657,963 666,385
------------- --------------
Total assets $ 97,486,900 $ 95,129,909
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 3,274,780 $ 2,551,384
Savings and NOW deposits 21,527,064 19,932,473
Other time deposits 36,545,070 37,860,935
------------- --------------
Total deposits 61,346,914 60,344,792
Borrowed funds 21,743,737 20,344,287
Advances from borrowers for taxes and insurance 109,336 399,331
Due to low-income housing partnership 413,192 413,192
Accrued expenses and other liabilities 747,317 825,563
------------- --------------
Total liabilities 84,360,496 82,327,165
Shareholders' equity
Preferred stock, par value $0.01; 500,000 shares authorized;
none outstanding
Common stock, par value $0.01; 2,000,000 shares authorized;
831,925 shares issued; 824,540 outstanding at December 31,
1997, and 823,540 outstanding at June 30, 1997 8,319 8,319
Additional paid-in-capital 7,646,225 7,619,120
Retained earnings, substantially restricted 6,372,057 6,110,757
------------- --------------
14,026,601 13,738,196
Unearned Employee Stock Ownership Plan shares (561,626) (561,626)
Unearned Recognition and Retention Plan shares (240,329) (262,281)
Treasury stock, at cost (7,385 shares at December 31, 1997
and 8,385 shares at June 30, 1997) (98,242) (111,545)
------------- --------------
Total shareholders' equity 13,126,404 12,802,744
------------- --------------
Total liabilities and shareholders' equity $ 97,486,900 $ 95,129,909
============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE> 4
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months and six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December December December
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest income
Loans Receivable $ 1,398,070 $ 1,266,822 $ 2,772,195 $ 2,526,924
Securities 299,500 369,235 603,250 688,803
Other interest-earning assets 105,085 67,971 231,986 147,255
------------ ------------- ------------ -----------
Total interest income 1,802,655 1,704,028 3,607,431 3,362,982
Interest expense
Deposits 673,106 669,022 1,350,040 1,359,728
Borrowed funds 275,254 169,472 564,234 300,950
------------ ------------- ------------ -----------
Total interest expense 948,360 838,494 1,914,274 1,660,678
------------ ------------- ------------ -----------
Net interest income 854,295 865,534 1,693,157 1,702,304
Provision for loan losses 15,000 15,000 30,000 30,000
------------ ------------- ------------ -----------
Net interest income after provision for loan losses 839,295 850,534 1,663,157 1,672,304
Noninterest income
Loan Servicing 31,110 30,268 61,413 60,932
Net gains on sales of loans 26,385 17,178 48,249 24,843
Net gains on sales of foreclosed real estate 399 16,717 20,038 16,717
Net loss on sale of fixed assets 0 0 0 (1,003)
Service charges on deposit accounts 56,159 43,963 109,819 83,261
Other 33,649 40,845 71,492 68,869
------------ ------------- ------------ -----------
147,702 148,971 311,011 253,619
Noninterest expense
Compensation and benefits 348,184 321,856 679,919 634,365
Occupancy and equipment 113,317 111,826 219,039 214,806
SAIF deposit insurance premium 9,570 28,453 18,945 476,889
Advertising and promotion 32,662 17,321 59,802 40,486
Data processing 51,851 48,536 102,987 96,440
Professional fees 28,231 31,020 60,458 57,168
Printing, postage, stationery, and supplies 26,392 32,253 50,864 62,395
Other 92,934 91,675 173,620 169,589
------------ ------------- ------------ -----------
703,141 682,940 1,365,634 1,752,138
------------ ------------- ------------ -----------
Income before federal income taxes 283,856 316,565 608,534 173,785
Federal income tax expense 81,250 114,200 180,850 63,710
------------ ------------- ------------ -----------
Net income $ 202,606 $ 202,365 $ 427,684 $ 110,075
============ ============= ============ ===========
Basic Earnings per Share $ 0.26 $ 0.26 $ 0.56 $ 0.14
Diluted Earnings per Share 0.26 0.26 0.56 0.14
============ ============= ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
THREE RIVERS FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six months ended December 31, 1997
(Unaudited)
<TABLE>
<S> <C>
Balance at June 30, 1997 $12,802,744
Net income 427,684
Effect of shares committed to be released by ESOP, 27,106
at market value
Cash dividends declared on common stock @ $0.20 per share (166,385)
Amortization of 2,650 RRP shares 35,255
-----------
Balance at December 31, 1997 $13,126,404
-----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
THREE RIVERS FINANCIAL CORPORATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 427,684 $ 110,075
Adjustments to reconcile net income to
net cash provided from operating activities
Depreciation of premises and equipment 105,294 101,552
Net accretion on securities (41,146) (16,377)
Provision for loan losses 30,000 30,000
RRP expense 35,255 34,590
ESOP expense 27,106 11,321
Loans originated for sale (1,878,925) (1,449,900)
Proceeds from sale of loans held for sale 1,927,175 1,353,544
Net gains on sales of loans (48,250) (24,844)
Net gains on sales of foreclosed real estate (19,639) (5,736)
Change in
Accrued interest receivable and other assets (89,560) (505,426)
Accrued expenses and other liabilities (78,246) 83,780
---------------- -----------------
Net cash provided by (used in) operating activities 396,748 (277,421)
Cash flows from investing activities
Net decrease (increase) in interest-earning time
deposits with other financial institutions $ (495,000) $ 694,000
Net increase in loans (780,298) (2,910,940)
Net premises and equipment expenditures (753,035) (68,748)
Purchases of securities held to maturity (1,000,000) (1,297,040)
Proceeds from maturities of securities held to maturity 1,000,000 -
Paydowns on securities held to maturity 2,046,164 1,109,457
Purchase of Federal Home Loan Bank stock (69,900) (148,600)
Proceeds from sale of foreclosed real estate 402,863 49,525
Net change in investment in low-income housing partnership 24,687 13,381
---------------- -----------------
Net cash provided by (used in) investing activities 375,481 (2,558,965)
</TABLE>
(Continued)
4
<PAGE> 7
THREE RIVERS FINANCIAL CORPORATIONS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in deposits $ 1,002,122 $ (3,352,166)
Net change in advances from borrowers for taxes
and insurance (289,995) (260,089)
Proceeds from borrowed funds 6,750,000 9,250,000
Repayments of borrowed funds (5,350,550) (3,616,322)
Cash dividends paid (166,385) (141,838)
---------------- -----------------
Net cash provided by financing activities 1,945,192 1,879,585
---------------- -----------------
Net change in cash and cash equivalents 2,717,421 (956,801)
Cash and cash equivalents at beginning of period 7,437,993 4,111,621
---------------- -----------------
Cash and cash equivalents at end of period $ 10,155,414 $ 3,154,820
================ =================
Supplemental disclosures of cash flow information
Cash paid for
Interest on deposits, advances and other
borrowings $ 1,920,475 $ 1,700,699
Income taxes - 120,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 8
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1997
(Unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore,
do not include all disclosures required by generally accepted accounting
principals for complete presentation of financial statements. The
unaudited information for the six months ended December 31,1997, and
1996 includes the consolidated results of operations of Three Rivers
Financial, Inc. (the "Company") and its wholly-owned subsidiary First
Savings Bank, FSB (the "Bank"). In the opinion of management, the
information reflects all adjustments (consisting only of normal recurring
adjustments) which were necessary for a fair presentation of the results
of operations for such periods but should not be considered an indication
of results for a full year or any other period.
Reclassifications: Certain items in the 1996 financial statements have
been reclassified to conform with the 1997 presentation.
Note 2 - SECURITIES
The Company classifies securities into held to maturity and available
for sale categories. Held-to-maturity securities are those which the
Company has the positive intent and ability to hold to maturity and are
reported at amortized cost. Available-for-sale securities are those the
Company may decide to sell if needed for liquidity, asset-liability
management or other reasons. Available-for-sale securities are reported
at fair value, with unrealized gains and losses, if applicable, included
as a separate component of equity, net of tax.
The Company's portfolios of securities held to maturity and available
for sale consist of securities acquired to meet the Company's regulatory
liquidity requirement and anticipated near term cash funding
requirements. Securities in these portfolios are U.S. Government and
federal agency securities, securities issued by states and political
subdivisions and corporate securities. The mortgage-backed and related
securities portfolio consist of issues from FHLMC, GNMA, FNMA, and other
collateralized mortgage obligations with contractual maturities ranging
from one to 25 years. The remaining securities held to maturity are
primarily due in one to five years. Approximately 95% of the combined
securities portfolio consists of fixed rate instruments while the
remainder consists of floating rate instruments.
(Continued)
6
<PAGE> 9
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1997
(Unaudited)
NOTE 3 - DEPOSITS AND LOANS
The Company is principally engaged in the business of accepting deposits
from the general public through a variety of deposit programs and
investing those funds by originating loans secured by one-to-four family
residential properties located in its market area, loans secured by
multi-family residential and commercial properties, construction loans,
second mortgage loans on single-family residences, home equity lines of
credit and consumer loans, both secured and unsecured, including loans
secured by savings accounts. The company sells most long-term fixed rate
mortgage loans to the secondary market.
NOTE 4 - BORROWINGS
Borrowings at December 31, 1997 consisted of advances from the Federal
Home Loan Bank (FHLB) of Indianapolis, bearing rates from 5.19% to 6.17%.
The loans are collateralized by the Company's single family whole loans,
U.S. Government and federal agency securities and mortgage-backed
securities. Adjustable rate advances included $5.5 million indexed to
the 3 month LIBOR rate which adjust quarterly. Adjustable rate advances
have maturities ranging from three months to five years. The remaining
balance of $16.2 million of advances are fixed rate, fixed term, with
maturities from one month to three years. The Company also maintains a
$500,000 line of credit with the FHLB which adjusts daily to the FHLB's
posted rate for these borrowings. The line of credit did not have a
balance at December 31, 1997.
NOTE 5 - EARNINGS PER COMMON SHARE
Basic and diluted earnings per share are computed under a new accounting
standard effective in the quarter ended December 31, 1997. All prior
amounts have been restated to be comparable. Basic earnings per share is
based on net income divided by the weighted average number of shares
outstanding during the period. Diluted earnings per share shows the
dilultive effect of additional common shares issuable under stock
options. The weighted number of shares outstanding for the calculation
of basic earnings per share for the three months ended December 31, 1997
was 770,096 and 769,167 for the six month period ended December 31, 1997.
(Continued)
7
<PAGE> 10
THREE RIVERS FINANCIAL CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 31, 1997
(Unaudited)
Note 6 - REGULATORY CAPITAL REQUIREMENTS
Savings institutions must meet three separate minimum capital-to-asset
requirements. The following table summarizes, as of December 31, 1997,
the capital requirements for the Bank and the Bank's actual capital
ratios. As of December 31, 1997, the Bank substantially exceeded all
current regulatory capital requirements.
<TABLE>
<CAPTION>
Regulatory
Capital Requirement Actual Capital
------------------- --------------
(Dollars in thousands)
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Risk-based capital $ 4,077 8.00% $ 11,773 22.42%
Core capital 2,902 3.00% 11,271 11.60%
Tangible capital 1,451 1.50% 11,271 11.60%
</TABLE>
8
<PAGE> 11
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Three Rivers Financial Corporation (the "Company") was incorporated under the
laws of the State of Delaware for the purpose of becoming the savings and loan
holding company of First Savings Bank, a Federal Savings Bank (the "Bank") in
connection with the Bank's conversion from a federally chartered mutual savings
bank to a federally chartered stock savings bank (the "Conversion"). On August
23, 1995, the Conversion was completed and the Bank became a wholly-owned
subsidiary of the Company. The following discussion compares the financial
condition of the Company at December 31, 1997 to June 30, 1997 and the
results of operations for the three-month period ended December 31, 1997 and
the six-month period ended December 31, 1997 with the same periods ended
December 31, 1996. This discussion should be read in conjunction with the
financial statements and footnotes included herein.
FINANCIAL CONDITION
December 31, 1997 compared to June 30, 1997.
The Company's total assets increased $2.4 million from $95.1 million at June
30, 1997 to $97.5 at December 31, 1997. The increases were due primarily to
increases in cash and cash equivalents, interest earning time deposits with
other financial institutions, loans receivable, and premises and equipment.
Such increases were partially offset by decreases in securities held to
maturity and foreclosed real estate.
Cash and cash equivalents increased $2.8 million or $37.84% from $7.4 million
at June 30, 1997 to $10.2 million at December 31, 1997. This was due to
management's decision not to invest in securities currently available in the
market due to rates and maturities.
Loans receivable increased $800,000 or 1.29% from $61.8 million at June 30,
1997 to $62.6 million at December 31, 1997 due to the normal level of demand.
These increases were funded by increases in FHLB Advances.
Interest earning time deposits with other financial institutions increased
$500,000 or 14.29% from $3.5 million at June 30, 1997 to $4.0 million at
December 31, 1997. The purchase of time deposits was in lieu of investing in
longer term securities.
Premises and equipment increased $700,000 or 50.00% from $1.4 million at June
30, 1997 to $2.1 million at December 31, 1997. This increase is the result of
the purchase of a building in Howe, Indiana, and the purchase of land and
payment for building materials in Middlebury, Indiana. A branch facility will
be opened in the building in Howe, Indiana with an anticipated opening date of
February 15, 1998. Construction of a new branch office in Middlebury, Indiana
began in December, 1997 and it has an anticipated opening date of May, 1998.
Investments in securitites held to maturity decreased $2.0 million or 11.19%
from $17.9 million at June 30, 1997 to $15.9 million at December 31, 1997.
Securities consisted of U.S. Government and federal agency securities,
mortgage-backed and related securities and other collateralized obligations.
This decrease was due to the amortization of payments on mortgage-backed
securities and other collateralized obligations.
(Continued)
9
<PAGE> 12
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Foreclosed real estate decreased $383,000 or 92.29% from $415,000 at June 30,
1997 to $32,000 at December 31, 1997. This decrease was due to the sale of a
large commercial property which had been carried on the books at $370,000. The
net proceeds of the sale were $384,000 which resulted in a gain on sale of
$14,000.
Total borrowed funds increased $1.4 million or 6.90% from $20.3 million
at June 30, 1997 to $21.7 million at December 31, 1997. This increase was
partially due to an incease in demand for loans, along with the opportunity to
lock in longer term funds at favorable rates . A portion of the funds will be
used to pay off loans due in January, 1998. Borrowed funds consist of
advances from the Federal Home Loan Bank ("FHLB") with both fixed and variable
interest rates and stated maturities ranging through 2001.
Total deposits increased $1.0 million to $61.3 million from $60.3 million for
the six-months period ended December 31, 1997. The largest increase by deposit
categories was in demand and statement savings accounts which was partially
offset by a decrease in time deposits. Management believes that customers are
seeking higher yielding investment alternatives due to the low interest rate
environment.
RESULTS OF OPERATIONS
Net income for the three months ended December 31, 1997 was $202,600 compared
to $202,400 for the three months ended December 31, 1996. Increases in
interest income of $99,000, or 5.81%, were offset by increases in interest
expense of $110,000, or 13.13%. Increases in noninterest expense of $20,000 or
2.93%, partially offset by a decrease in federal income tax expense, account
for the flat earnings for the same period ended December 31, 1996. The Company
receives federal income tax credits for the investment in the Michigan low
income housing partnership. The Company anticipates flat earnings for the next
year due to the expansion into the Indiana market.
Net income for the six months ended December 31, 1997 was $428,000 compared to
$110,000 for the six months ended December 31, 1996, an increase of $318,000 or
289.09%. This was primarily a result of the BIF/SAIF Regulatory Burden Relief
Package signed by President Clinton on September 30, 1996. The impact of this
legislation on the Company's noninterest expense was approximately $411,000
pretax for the six month period ended December 31, 1996.
In addition to the BIF/SAIF special assessment, net income for the six months
ended December 31, 1997 as compared to the same period in 1996 was impacted by
an increase in total interest income of $244,000 or 7.26% to $3,607,000 from
$3,363,000 for the six month period ended December 31, 1996. This increase was
offset by a $253,000 increase in interest expense or 15.23% to $1,914,000
from $1,661,000 for the corresponding period ended in December 31, 1996.
(Continued)
10
<PAGE> 13
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-interest income decreased $1,000 from $149,000 to $148,000 for the three
month period ended December 31, 1997. Increases in gains on sale of loans of
$9,000 and service charges on deposit accounts of $12,000 were partially
offset by decreases in gains on sale of foreclosed real estate of $16,000 and
$7,000 in other income.
Non-interest income increased $57,000 or 22.44% to $311,000 from $254,000 for
the six month period ended December 31, 1997 compared to the same period ended
December 31, 1996. This was due to increases in gains on sale of loans and
foreclosed real estate owned along with increases in service charges on deposit
accounts.
Increases in compensation expense of $26,000 to $348,000 from $322,000 along
with increases in advertising and promotion expense which increased $16,000
from $17,000 to $33,000 were offset by decreases in the SAIF deposit premium of
$18,000 from $28,000 to $10,000 for the three month period ended December 31,
1997.
Non-interest expense decreased $386,000 or 22.03% to $1,366,000 from $1,752,000
for the six month period ended December 31, 1997 compared to the six month
period ended December 31, 1996. The majority of the decrease was reflected in
a decrease in the deposit insurance premium of $458,000 from $477,000 for the
six month period ended December 31, 1996 to $19,000 for the six month period
ended December 31, 1997 along with a decrease of $11,000 in printing and
postage expense. These decreases were partially offset by increases in
compensation expense of $46,000 to $680,000 from $634,000 and advertising
expense of $20,000 to $60,000 from $40,000.
Increases in compensation expense for the three and six month period ended
December 31, 1997 are due to the hiring of new staff to oversee and staff the
new branches (Refer to page 9, paragraph 6), along with partial funding the
RRPs of a retiring director. This increased expense is partially offset by a
reduction in retirement expense.
Income tax expense is higher for the three and six-month periods ended December
31, 1997 due to the increase in income as compared to the same periods in 1996.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan
losses based on management's quarterly asset classification review, and
evaluation of the risk inherent in its loan portfolio and changes in the nature
and volume of its loan activity. Such evaluation considers, among other
matters, the estimated value of the underlying collateral, economic conditions,
cash flow analysis, historical loan loss experience, discussions held with
delinquent borrowers and other factors that warrant recognition in providing
for an adequate allowance for loan losses. As a result of this review process,
management recorded a provision for loan losses in the amount of $15,000 for
the three-month period ended December 31, 1997. While management believes the
current
(continued)
11
<PAGE> 14
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
allowance for loan losses is adequate, management anticipates growth in the
loan portfolio and will therefore, continue to make additional provisions to
the allowance for loan losses. No assurance can be given that amounts
allocated to the allowance for loan losses will be adequate to cover actual
losses that may occur.
Total non-performing assets increased $236,000 at December 31, 1997 to $807,000
as compared to $571,000 at June 30, 1997. The ratio of non-performing assets
to total assets at December 31, 1997 was 0.83% compared to 0.60% at June 30
1997. Included in non-performing assets at December 31, 1997 were consumer
loans in the amount of $48,000, non-performing mortgages of $716,000,
foreclosed real estate of $32,000 and other repossessed assets of $11,000.
Management has considered a commercial loan participation, classified as a
non-accrual loan at December 31, 1997, as impaired. At December 31, 1997, the
Bank's balance was $522,000. Collection under the original terms of the
agreement is in doubt and, thus, management has classified the loan as impaired
at December 31, 1997 and has allocated a specifie reserve of $60,000 within the
allowance for loan losses. This $522,000 is included in non-performing
mortgages listed above.
OTS regulations require that the Bank periodically review and classify assets
pursuant to the classification of assets policy set forth in its regulations.
Based on management's review of its assets as of December 31, 1997, $658,500 of
assets were classified as substandard, $-0- as doubtful, $-0- as loss, and
$112,416 as special mention. At the time of the quarterly review, an asset
classification listing is prepared, in conformity with the OTS regulations, and
a detailed report is presented to the Board.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, borrowings from the FHLB and
interest payments on loans. While scheduled repayments of loans are a
predicable source of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Bank has managed this fluctuation in its source of funds through borrowings
from the FHLB.
Under OTS regulations, a savings association is required to maintain an average
daily balance of liquid assets (including cash, certain time deposits and
savings accounts, bankers' acceptances, certain government obligations, and
certain other investments) in each calendar quarter of not less than 4% of
either (1) its liquidity base (consisting of certain net withdrawable accounts
plus short-term borrowings) as of the end of the preceding calendar quarter, or
(2) the average daily balance of its liquidity base during the preceding
quarter. This liquidity requirement may be changed from time to time by the
OTS to any amount between 4.0% and 10.0%, depending upon certain factors,
including economic conditions and savings flows of all savings associations.
For the quarter ended December 31, 1997, the Bank maintained a liquidity ratio
of 29.83%. The Bank anticipates that it will have sufficient funds available
to meet current commitments.
12
<PAGE> 15
THREE RIVERS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NEW ACCOUNTING PRONOUNCEMENTS
Recent pronouncements by the Financial Accounting Standards Board (FASB) may
have an impact on financial statements issued in this and subsequent periods.
These standards include the following Statements of Accounting Financial
Standards (SFAS):
SFAS No. 128, "Earnings Per Share," revises the accounting requirements for
calculating earnings per share. Basic earnings per share for the quarter ended
December 31, 1997 and later will be calculated solely on the average common
shares outstanding. Diluted earnings per share will reflect the potential
dilution of stock options and other common stock equivalents. All prior
calculations will be restated to be comparable to new methods.
SFAS No. 129, "Disclosure of Information about Capital Structure," establishes
standards for disclosing information about capital structure, including
pertinent rights and privileges of various securities outstanding. This
statement is effective for financial statements for periods ending after
December 15, 1997.
SFAS No. 130, "Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general-purpose financial
statements. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. Income tax effects must also be shown. This
Statement is effective for fiscal years beginning after December 15, 1997.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires those enterprises report selected information about operating segments
in interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997.
Management has determined that the impact of the adoption of these statements
on the financial position or results of operations will not be material.
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<PAGE> 16
PART II
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 29, 1997, the Company held its annual meeting of stockholders. At
the meeting G. Verglea Gotfryd, Thomas O. Monroe, Sr., and Stephen R.
Olson were reelected to three-year terms on the Company's Board of
Directors. The term of office of directors Philip Halverson, G. Richard
Gatton, and Larry A. Clark continued after the meeting. The only other
matter voted on at the annual meeting was the appointment of Crowe, Chizek
and Company as the Company's independent auditors for the year ending June
30, 1998. The voting on these matters was as follows:
<TABLE>
<CAPTION>
1. Election of Directors
<S> <C> <C>
G. Verglea Gotfryd Thomas O. Monroe, Sr. Stephen R. Olson
For: 742,229 votes For: 741,729 votes For: 741,629 votes
Withheld: 19,027 votes Withheld: 19,527 votes Withheld: 19,627 votes
</TABLE>
<TABLE>
<CAPTION>
2. Appointment of Auditors
<S> <C>
For: 750,038 votes
Against: 6,718 votes
Abstentions: 4,500 votes
</TABLE>
ITEM 5 - OTHER INFORMATION
Director John Mathews retired from the Board effective October 1, 1997. He
was subsequently named Director Emeritus.
On November 19, 1997, the Company declared a cash dividend of $0.10 per share
which was payable on January 2, 1998, to stockholders of record on December
12, 1997.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-k
None
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<PAGE> 17
THREE RIVERS FINANCIAL CORPORATION
THREE RIVERS, MICHIGAN
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Three Rivers Financial Corporation
Date: February 12, 1998 /s/ G. Richard Gatton
-------------------------------------
G. Richard Gatton
President and Chief Executive Officer
Date: February 12, 1998 /s/ Martha Romig
-------------------------------------
Martha Romig
Senior Vice-President, Treasurer and
Chief Financial Officer
15
<PAGE> 18
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ------- --- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SCHEDULE 10Q
DATED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,990,104
<INT-BEARING-DEPOSITS> 8,165,310
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 15,919,932
<INVESTMENTS-MARKET> 16,021,389
<LOANS> 62,562,928
<ALLOWANCE> 504,533
<TOTAL-ASSETS> 97,486,900
<DEPOSITS> 61,346,914
<SHORT-TERM> 109,336
<LIABILITIES-OTHER> 747,317
<LONG-TERM> 21,743,737
0
0
<COMMON> 8,319
<OTHER-SE> 13,118,085
<TOTAL-LIABILITIES-AND-EQUITY> 97,486,900
<INTEREST-LOAN> 2,772,195
<INTEREST-INVEST> 603,250
<INTEREST-OTHER> 231,986
<INTEREST-TOTAL> 3,607,431
<INTEREST-DEPOSIT> 1,350,040
<INTEREST-EXPENSE> 1,914,274
<INTEREST-INCOME-NET> 1,693,157
<LOAN-LOSSES> 30,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 173,620
<INCOME-PRETAX> 608,534
<INCOME-PRE-EXTRAORDINARY> 608,534
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 427,684
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<YIELD-ACTUAL> 7.87
<LOANS-NON> 763,314
<LOANS-PAST> 131,996
<LOANS-TROUBLED> 128,616
<LOANS-PROBLEM> 112,416
<ALLOWANCE-OPEN> 487,184
<CHARGE-OFFS> 16,671
<RECOVERIES> 4,020
<ALLOWANCE-CLOSE> 504,533
<ALLOWANCE-DOMESTIC> 60,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 444,533
</TABLE>
